Housing is a Growing Source of Instability

Monday, September 21, 2015

As someone who has worked in the housing industry for more than four decades, I have never seen housing in such desperate shape. Yet, for the majority of Americans who today live in safe and affordable homes and communities, concerns about housing may seem abstract and distant.

“Why should I care?” some may ask. Answering this question first requires putting some facts on the table.

According to a recent Harvard study, more than one-third of all U.S. households, almost 40 million in total, spend in excess of 30 percent of their incomes just on housing. For renters, securing affordable housing is particularly challenging—more than 11 million renter households, greater than one-in-four, devote in excess of 50 percent of their incomes to housing. An acute shortage of affordable rental homes is a major factor contributing to these unsustainable housing costs.

With mortgage credit tightening, the national homeownership rate has plummeted to a 48-year low. The homeownership rates for African-American and Hispanic households have fallen dramatically, while fewer first-time homebuyers are entering the market despite historically low interest rates. As if trapped in a vicious cycle, many young families are finding it difficult to save for a mortgage down payment because of rising rents.

These problems of rental affordability and homeownership access are likely to worsen over the next 15 years as millions of young Millennials, many of them African-American and Hispanic, form households for the first time.

The deplorable conditions in housing today should concern all of us, regardless of whether we are satisfied with our own personal housing situations. To me, three words summarize why this is so: Family. Community. Country.

Millions of well-housed parents with children of college age and older know all too well what their sons and daughters are up against. Skyrocketing rents, particularly in our major cities, are causing severe cases of sticker shock. When combined with student loan debt, these costs make the idea of saving enough for a mortgage down payment seem far-fetched. For parents of these young adults, housing is a very serious family concern.

But parents with younger children—there are about 25 million between the ages of 12 and 17—should also take note. If current trends continue, we will see an enormous influx of new renters through 2030. The Urban Institute projects that 62 percent of new housing demand this decade will be rental and 56 percent in the following decade. Absent a dramatic increase in the supply of affordable rental homes, this wave of new demand will continue to put upward pressure on rents, making housing affordability an even bigger problem in the future.

But we don’t need a crystal ball to appreciate what’s happening in housing: just look at your own community where housing has already become a growing source of instability.

In a 2014 study of the 100 largest U.S. metro areas, Trulia found that just 63 percent of homes in these areas were “within reach” for a middle-class family. The situation was even worse in the 20 wealthiest metros, with just 47 percent of homes considered affordable. San Francisco had the lowest affordability rate at 14 percent, even though household incomes were higher there than just about anywhere else in the country.

To find affordable housing, many of those we depend upon the most—police officers, firefighters, nurses and teachers—are forced to look outside the communities they serve and travel many hours to get to work. These long commutes can reduce productivity and lower worker morale. Having to “import” workers in this way often signals the beginning of a community’s own decline.

Our nation’s economy and future prosperity are also at stake.

The millions of families who today pay unsustainable portions of their income on housing often live paycheck to paycheck. Economic instability is a hallmark of their lives. Those who suffer the most from these conditions are often children, who face diminished educational prospects.

Access to affordable housing that is close to centers of employment and good schools can help stabilize these families and set them on the path to upward economic mobility. It can open up opportunities for their children by giving them a chance at a decent education. Taxpayers can benefit as demand for government services is reduced. Building more affordable housing creates jobs and generates much-needed tax revenues.

There are also potentially significant macroeconomic effects: A recent National Bureau of Economic Research working paper argues that those cities where affordable housing is scarce, often the result of restrictive land-use policies, act as a drag on overall U.S. economic growth. Other research by Standard & Poor’s suggests that promoting greater income equality can support more sustainable long-term growth. Expanding access to affordable housing is key to narrowing these income gaps and achieving this economic-growth objective.

Family, community, and country: these are three great reasons for everyone to care about the state of housing in America.

Join BPC and the J. Ronald Terwilliger Foundation for Housing America’s Families on October 16 at the New Hampshire Housing Summit, where the public, policymakers and presidential candidates will focus on these critical issues facing the nation.

KEYWORDS: MILLENNIALS, MORTGAGE